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Yesterday, I was asked about statements I have made on numerous
occasions that the recovery of the junk bond market helps explain
the rise in equity markets. Here is the specific question:

Mish,

Can you explain why you frequently say that the corporate bond
market supports the equities market? I don't see why it would
have the major effect you seem to claim it does.

Let's go over the reasons once again.

Companies that cannot get financing go out of business.

In March of 2009 many corporations poised to go under because
they could not get financing had exceptionally low stock market
valuations. Even GE was on that list. Those stocks rose many
multiples after Bernanke managed to revive the junk bond market.

The wall of bonds and loans maturing through 2014 has crumbled by
$482 billion, or 44 percent, since 2009, reducing the threat of
defaults and allowing companies to bring riskier deals to market.
The amount of debt due in the next four years dropped to $671
billion, from $1.2 trillion in 2009, according to JPMorgan Chase
& Co.

Some $163 billion of bonds and loans come due in 2011 and 2012,
or about 60 percent of the refinancing activity in 2010. Clear
Channel Communications Inc. said it plans to sell $750 million of
bonds to repay $500 million of short-term loans.

Stronger economic growth and the Federal Reserve´s decision to
keep benchmark interest rates at almost zero, while pumping $600
billion into the financial system by purchasing Treasuries, have
driven down yields and spurred demand for low-rated debt. That´s
allowed companies to seek new borrowings with fewer provisions
that protect investors.

"The wall of worry has been greatly reduced," said Sabur Moini,
the high-yield money manager at Los Angeles-based Payden &
Rygel, who oversees about $2 billion of speculative-grade debt.
"You've had a big rally for the last two years and that's allowed
companies and underwriters to be more aggressive."

How much better can things get, especially with treasury yields
soaring?

I believe junk bonds are priced for perfection and equities
priced well beyond perfection.